I was asked for comment by Bill Bennet from the NZ Herald, for a piece on Kiwi startups moving to Silicon Valley. He built a nice little article, in which “Torkington says” features heavily. My policy is that if I email journalists, I’ll blog my side of the conversation for transparency’s sake.

I had two more comments responding to ideas he’d thrown in email, but I’ll wait to see if they make it to print before blogging them (don’t want to steal his thunder–I know there are millions poised on my every word and I’d hate to deny him traffic *wink*).

My take …

Growing startups need capital, connections, customers, and a clever crew. Most startups find all those in America. In particular, Silicon Valley is full of other companies doing the same thing. This means there are great people to hire (but they’re expensive); there are incredible advisors and people who have done it all before (but that means the competition is strong too); and lots of money for investment–not to mention potential buyers if your company is taking off. Interestingly, word from many entrepreneurs is that the investors in America will often take less of a slice of your business and give you better connections and advice for it than will NZ investors. Hanging out there exposes you to the latest technology, the latest thinking, and the latest opportunities in a way that living in NZ cannot. One of the biggest advantages of spending time in San Francisco is that you don’t feel like the only founder in the village.

However, the flip side of being in Silicon Valley is that you’re now amongst the Silicon Valley groupthink. So if you’re not careful you’ll think the clever thing to do is to found “Uber for bedding” or “Groupon for Bitcoin”. There’s an entire category of Silicon Valley startup that exists to replace the founder’s mother: laundry, food, housekeeping, even packing your suitcase. (See http://www.businessinsider.com/san-francisco-tech-startups-replacing-mom-2015-5?op=1 for the full horror)

So being in Auckland lets you steer clear of that kind of kool-aid. That’s why many Kiwi companies split their time, team, and attention between America and NZ. They’re trying to get the best from each environment.

Here, of course, I’m talking about startups with the classic definition of “new company that wants to get big fast” (which I first heard from Paul Graham, not sure if he originated it) … as opposed to lifestyle businesses which don’t have the “get big fast” ambitions. NZ tends to produce a lot more of the lifestyle businesses (individual plumbers, or 3-5 person businesses that service a town or region but don’t aspire to go nationwide) than globally ambitious startups like Wynyard Group or Xero.

I suspect that at least one reason for that is that our geographic structure (long thin country, only one city with >1M people within driving distance, total national market barely 4.5M, a lot of 1- or 2-player categories like supermarkets) means that there just aren’t a lot of products whose domestic demand lets a business “get big fast”. For this reason, Kiwi entrepreneurs are exhorted to go global from the start.

If you’re selling internationally then buyers, distributors/resellers, marketing outlets and partners with complementary products are all to be found over a lot of water. This makes Air New Zealand a strategic asset for NZ businesses’s global competitiveness, a point not lost on the centre-right government who aren’t rushing to privatise the still majority-state-owned airline. Even digital businesses, such as VendHQ or Hapara, have international presence to setup and maintain the kind of trusted relationships that have to be built face-to-face. There are a few exceptions to this Frequent Flier Founder Syndrome, such as Rich Chetwynd and Nicole Fougere of Litmos, who built and sold their company without needing a US office or employee or even a lot of trips there—despite their customers and events all being in America. Such clever low-overhead growth remains exceptional, however, with most startups building businesses that require America for investment and markets. (I expect to see the same thing happen with China, modulo the warping effect of the activation energy required to enter Chinese markets and to exfiltrate profits)

Until we normalise the high-leverage way in which Litmos grew, Silicon Valley will continue to be a magnet for Kiwi startups. And rightfully so. It’s where the money is.